The Australian Competition and Consumer Commission (ACCC) has successfully pursued court action against “property spruiker” Rick Otton, with the Federal Court finding his company made a number of false and misleading representations to customers about wealth creation through real estate, including the claim consumers could “buy a house for $1”.
Otton runs the company We Buy Houses Pty Ltd and promotes himself as a self-made millionaire and an “internationally recognised property investor and mentor” on his numerous websites promoting real estate purchasing strategies.
The consumer watchdog pursued court action against We Buy Houses in 2015, and this month the Federal Court found Otton enticed customers into signing up for his various workshops and seminars by claiming they could purchase a $1 house “without needing a deposit, bank loan or real estate experience, or using little or none of their own money”.
The Court said the company failed to sufficiently inform consumers that the strategy could only work if they already owned property or could finance a bank loan.
Additionally, the court found the company represented to clients they could “build a property portfolio without their own money invested, new bank loans or any real estate experience, and start making profits immediately and create or generate wealth”, according to a statement from the ACCC.
The ACCC said some customers paid up to $3000 for a ticket to one of Otton’s boot camps, and an additional 700 consumers participated in one of his mentoring programs, with a total cost of $26,000.
Justice Gleeson told the court that Otton’s free seminars were “a waste of time, and that the boot camps and the mentoring programs were an expensive waste of time”, ACCC deputy chair Delia Rickard explained in a statement.
“I formed the view that Mr Otton was a very unreliable witness who was prepared to maintain or defend statements that were obviously untrue or misleading and who is habitually careless with the truth in making statements and claims designed to promote [his and We Buy Houses’] business interests,” Justice Gleeson said.
“Today’s judgment sends a strong message to ‘property spruikers’ that they must not make false or misleading representations about the success and profitability of their ‘wealth creation strategies’ to induce consumers to pay significant sums to learn about them,” Rickard said last week.
According to the ACCC, We Buy Houses has been operating within Australia since 2000 and generated the majority of $20 million in revenue between 2011 and 2014 via theses boot camps and seminars.
The watchdog says it will now prepare for a hearing on penalties, while Otton said in a statement last week that he is pleased the Court found the phrase “How to buy a house for $1” could not be “taken at face value”, and he is now considering the rest of the findings.
“As I so-often explained, the technique was designed to help home owners who can no longer pay home loan repayments and with the help of a turnaround specialist, ensures that they do not become mortgagee sale roadkill,” Otton said.
“We accept Her Honour’s findings that insufficient proof was presented to prove how this vendor finance technique can work in practice.”
“Significant penalties” a possibility
Although penalties are yet to be decided by the Court, commercial law partner at TressCox Lawyers Alistair Little believes they could be significant, telling SmartCompany the potential penalty for companies found to have breached Australian Consumer Law is up to $1.1 million per offence.
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“Additionally, the penalties imposed on individuals can be up to $250,000 per offence, so the penalties we’re talking about here could be very significant,” he says.
“It’s very important when making representations about something that you make clear all of the background information necessary when making the representation.”
“When [Otton] made the representation about being able to buy a property for $1, what the court found offensive was the promise would only work if the customer was already an owner of some real estate.”
Businesses should be clear about all the information a consumer would need to know about a claim that is made, Little says.
“Make sure you disclose all of the information to consumers that leads you as a business to make the representation.”
For example, Little says, this could mean displaying a prominent disclaimer alongside any bold representations being made, with the disclaimer needing to be “as prominent as the representation”.
“You can’t have an asterisk with a tiny message on the back, you need to make the representations completely clear,” he says.
“The ACCC has made clear in the way it pursued … [others] and in the way it is pursuing this as well that they’re not going to let property spruikers run these kinds of schemes,” Little says.